GROWTH, SECTORAL COMPOSITION, AND THE WEALTH OF NATIONS

Jaime Alonso-Carrera () and Xavier Raurich ()

CAMA Working Papers from Australian National University, Centre for Applied Macroeconomic Analysis

Abstract: This paper asserts that the endowments of production factors cause cross-country differences in GDP per capita by generating disparities in the sectoral composition. For that purpose, we characterize the dynamic equilibrium of a two-sector endogenous growth model with many consumption goods that are subject to minimum consumption requirements. In this model, economies with the same fundamentals but different endowments of capitals will end up growing at a common rate, although the long run level and sectoral composition of GDP will be different. Because the total factor productivity depends on sectoral structure, these differences in capital endowments will also generate sustained differences in the total factor productivities. Moreover, in our model the slope of the policy functions depends on the initial values of the capital stocks, which implies that the total factor productivities of economies with the same economic fundamentals may diverge along the transition.

JEL-codes: O30 O40 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse
Date: 2007-07
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Related works:
Working Paper: Growth, Sectoral Composition, and the Wealth of Nations (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:acb:camaaa:2007-15

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